News / Pressure mounts as deficits rise and confidence falls

By Seamus Ward

A third of foundation trusts were in deficit at the end of the first quarter and foundations continue to fall short of delivering planned cost improvement savings, according to regulator Monitor.

The mounting concern over deficits comes despite an aggregate surplus ahead of plan.

Rising financial pressure is showing in other parts of the NHS. In his report to the NHS Trust Development Authority board on 26 September, chief executive David Flory said the financial performance of the non-foundation trust sector was a significant concern, with a number of organisations projecting a year-end deficit.

While some were recovering from more serious financial problems in previous years, other deficits have emerged or increased this year.

And the King’s Fund quarterly monitoring report said only one in 10 finance directors believe the chances of delivering £20bn in productivity improvements by 2015 are better than 50:50.

It said 56% of finance directors felt there was a high or very high risk that the target will not be met. Only a third of finance directors in trusts expected to meet their cost improvement targets for 2013/14, compared with 72% of commissioning chief finance officers. ?

King’s Fund chief economist John Appleby said: 'The findings from our survey of finance directors have become significantly more pessimistic over the past 12 months, reflecting the growing pressures on the NHS. Now, just over half way through the so-called Nicholson challenge, it is clear the NHS will struggle to meet its £20bn productivity target, with potentially serious consequences for patient care.'

According to Monitor, the 146 foundations reported a £27m aggregate surplus. This is £9m more than planned, but less than at quarter one in 2012/13 (£62m).

The EBITDA (earnings before interest, tax, depreciation and amortisation) margin was 5.1% compared with 5.6% a year earlier, continuing the trend of a slow deterioration of margins, the regulator said.

Operating revenues were 1% ahead of plan as a result of additional activity in acute trusts. And there was an 18% leap in non-NHS clinical revenue compared with a year earlier.

However, pay costs were ahead of plan due to a £163m overspend on agency and bank staff and overtime. This was partly offset by savings from vacancies. Other operational costs, such as for supplies and drugs, also rose in line with increased activity.

A third of foundations (48 trusts) reported deficits totalling £74m. In contrast, at the end of June 2012 aggregate deficits of £62m were reported by 36 trusts.

Monitor said 68% of the aggregate deficit this financial year was down to 12 trusts. In the acute sector, half of all foundations have a deficit before exceptional items. Small and medium acute foundations have the lowest EBITDA margins of 4.1% and 3.3% respectively.

Foundations had delivered cost savings of 2.5% in the first quarter. This was £57m (19%) behind plan and was driven by shortfalls in pay and clinical supplies savings because of the higher activity.

Monitor added that it was concerned that trusts were finding it increasingly difficult to deliver cost improvement programmes (CIPs). It said 18% of CIPs in quarter one were non-recurrent measures compared with 13% a year ago and 7% in the plan.

Monitor finance, reporting and risk director Jason Dorsett said more trusts were missing A&E waiting targets – 38% did so in the first quarter, compared with 16% a year before. This suggested that trusts had faced prolonged winter pressures.

‘Our analysis of returns from foundation trusts shows that patients are still waiting too long at A&Es in a number of foundation trusts. Increased demand means more than ever that trusts need better and earlier planning.

‘The increased demand has also prevented trusts from delivering their planned financial savings. We expect to see trusts planning now for how the increased demand will impact on their finances, so that they are not storing up trouble for the future.’

Monitor has said it is concerned about the accuracy of financial forecasting and is expected to write to foundation trusts this month to revise financial planning requirements.